China -

[cross-posted from our WFU MBA China Trip blog]

It's been just over three months since we returned from our International Trip to China and it felt like the right time to reflect on how that experience has changed my thinking about the world. This isn't going to be terrible formal, just a list of stuff that I've been thinking about recently:

1 - Sort of like the soldiers that returned to the farms after WWII ("you can't send them back to the farm after they have seen Paris"), it's very difficult to get the allure of China our of your consciousness.

2 - When you're in China, the opportunities feel like they are so close and completely within reach. It's only when you're back in the US do you realize how far away they really are (even with today's communications technologies). The immediacy of opportunity in China is intoxicating.

3 - Like anything else, it takes practice and repetition to get better at China. For the first 45-60 days back, I read the Chinese newspapers online religiously, trying to take in every little nuance. Since then, US life has been creeping back in very quickly and I feel like my China-ese is getting rusty. I need to get back into practice.

4 - Two weeks doesn't sound like a long time, but it provided an incredible foundation for understanding the basics of the complex world of Chinese business and culture. Our summer and fall semesters incorporated International elements in every session, and our trip more than adequately prepared us with the right mindset to have success in doing business with/in China.

5 - I miss the food. I miss the adventure of what it was, what it might be, and only using chopsticks. I never felt like I overate in China, yet I also never felt hungry. They seemed to have figured out the perfect mix of variety, healthiness and entertainment with their meals. The US needs to take a page out of the Chinese cookbook.

6 - I've been thinking about ways to start a business that involves China in some way. I'd say that at least half of the people in our class (from the trip) have been having those same thoughts. I have the skeleton of the business plan in place, and a key first meeting in a couple weeks. It's a great time to be an entrepreneur.

7 - If you are ever part of any of the WFU Business School programs and have an interest in International business, do not hestitate to engage Mike Lord. If you are passionate about International business, Mike will match your passion by 2x.

8 - We have problems here in the US, and they have problems in China too. But their problems just feel much larger in scale. So even if you're not going to doing something China-related or International-related, do something that has some scale to it. Make a difference!!

OK, I'll end it with #8, since 8 is the number signifying good luck and wealth in China. I hope you all get to visit China some day, as it's an incredible country and one of the highlights of the WFU MBA program.

Starting Something on the Side (The Environmental Capitalist)

Inspiring by an upcoming class project, a few passionate classmates, an Adam Carolla podcast with Ed Bagley Jr, and the horrendous smog in the great cities of China, I decided to start a side project called The Environmental Capitalist. Going completely against everything I've learned about strategy, planning and business models in this MBA program, I'm not exactly sure where it will go. It feels like it needs to be a community building effort, with a few splashes of education thrown in. I have a bunch of ideas, but we'll see where it goes. Check in from time to time to see if anything interesting emerges.

Understanding (and misunderstanding) how to use Digital Media

One of the more interesting aspects of the latter stages of an MBA program is that you spend less time focused on the classroom details and more time discussing and applying them to elements of your life. You find yourself looking at even the smallest interaction as an opportunity to analyze and seek improvement. Here's an example from a recent interaction with my roommate from the China trip, Gregg Lewis.

Gregg and his wife work regionally out of Roanoke, VA. He has won national awards for his architectural work, and been recognized internationally for his efforts to push the Cradle to Cradle concept of environmentally sustainable design. Gregg's passion for combining great architecture with eco-friendly sustainability are the foundation for his long term goals to raise awareness of the challenges ahead, and drive the overall building industry to be more responsible.

Over the weekend, I received an email from Gregg saying, "hey - wrote this opinion piece for the Roanoke Times - it'll be published this week." The piece ran on Monday. Overall it was well written and provides some good connectedness between the ideas being fostered by several well known individuals. My comments back to him had little to do with the content and almost everything to do with how he planned to amplify this message.

1. Is the Roanoke Times offering you a regular column to discuss aspects of environmental issues?
2. How else do you plan to get this message out to more people?

We had some follow-up discussions about basic things like Blogging, Twitter and other ways to use low-cost digital media outlets to amplify his message and generate some new conversations with people from around the world with similar interests. For now, those are on hold and we'll see if he's willing to put in some time to cultivate those communities.

This afternoon, I finally got around to looking at the piece on the Roanoke Times website. My first search for "Gregg Lewis" turned up this counter-point piece. Opinions aside, it highlights all the reasons the newspaper industry is going out-of-business and clearly doesn't understand the new world we live in. I'll just highlight a few points:

• This is a digital piece of information. It is a counter-point piece. But yet it has no URL linkage to the original piece. It forces the reader to search for it, with marginal chance for finding it.
• It provides no URL linkage to the associated articles. One again, the reader has no easy way to add breadth to the piece they are consuming.
• It provides no mechanism for the reader to comment on the articles. How does the Roanoke Times plan to gather feedback from their customers on whether or not this content is interesting to them? Wouldn't this be helpful to them to better target advertisers? Might their readers enjoy the ability to be part of the discussion?
• It doesn't allow the readers to communicate back to the author (email address, Twitter account??), essentially making this a one-way conversation in a world where two-way or asynchronous conversations rule the day.
• It hides easy linkage (see "Share it" button at top, instead of icons) to share the piece with other users or services (Twitter, Digg, Facebook, Reddit, etc..). Are they only interested in readers that manually navigate to this page? Do they have no interest in free distribution and possibly national or international readers?

So here we have a global message, one that needs discussions and ideas from many sides to make progress, and the institution publishing the message doesn't seem to understand the fundamentals of facilitating the conversation. They are stuck in a world of local readers, local writers, and paperboys with papers slung over their shoulders in a canvas bag for early morning delivery. They have never been in the conversation business, so it's not surprising that they don't understand even cocktail-party basics.

I hope that my friend's message and future work is able to better take advantage of the digital economy that could allow it to grow and expand. I'm more than willing to help share my experiences.

Exploring International Business

Ever since we retuned from China, I have been exploring ways to expand my international business experience. I have several ideas for new ventures that have an international focus, but I need to find a way to gain some experience in the field to legitimize those potential opportunities.

A few weeks ago, I came across a sister city project between Raleigh, NC and one of Beijing's "star" cities. One of the US principles was Lily Yang of Yang Consulting. I reached out to Ms.Yang to create an introduction, and to explore if there might be ways that I could get engaged in any of her international projects. While I don't have the language skills yet, I believed that there might be some opportunity to offer my experience in strategy, marketing, research/analysis, or social media.
I may not have done this in previous years, but I have been learning a ton about actively networking outside your normal circles from Jack Perez over at Summit Strategy Partners.

I was pleasantly surprised when Ms.Yang offered to meet with me and discuss ways that I could leverage some of the skills and experience I've gained from this International semester towards some of her existing projects. While I don't have very many free hours to offer, I look at this as a valuable internship to get me the international experience that I would not easily be able to achieve in my current position. Just from talking to a few people at school about this, I may have two opportunities to engage new projects with Lily, so maybe I will bring some value to this interaction.

I don't know exactly what to expect from this opportunity, but I feel like it's the first step towards opening some doors that I will need for the rest of my career.

Award-Winning Classmate

Congratulations to classmate Gregg Lewis and his wife Jennifer, co-founders of SmithLewis Architecture. Their work on Roanoke's Claude Moore Education building was selected from over 2000 finalists to receive the Green Building of America Award.

This is not the first time Gregg's work has received national prominence for Environmentally-Aware Architecture. He first exposed our class to his activities to drive Cradle-to-Cradle principles in the Fall, and continued to enlighten us on architecture as we traveled across China last month.

2 Million Minutes

I had not heard of the 2 Million Minutes project before, but coincidentally for many of the Executive MBA students on the China trip, this was the topic of conversation during many of our bus rides and meals. Seeing the pace of growth in China, it was hard not to envision how much this would effect our young children. Several of the exPats told us stories about how their children spoke multiple languages and how they embraced traveling to various countries in the region, learning about their cultures and differences. That's something that we don't expose our children to enough here in the US.

I plan to watch this documentary soon. I don't know if I'll have much of an opportunity to change the education system presented to our children, but I do have the opportunity to educate them on the world and give them additional opportunities to expand their views of the world.

International Learnings - Page 2 ("China Growth")

One of the great things about MBA programs is the opportunity to learn, fail, make mistakes and be humbled without too much loss of political capital. It's even better when you get almost immediate feedback on an area where you missed the mark, or visualize the concepts in the context of the bigger picture.

A couple days ago, I wrote about my initial thoughts about China's Growth and their ability to sustain it over the next couple of decades. Much of it was based on our experiences from our company visits on the China trip, and multiple discussions with classmates on the subsequent bus rides around the country.

Much of class yesterday, in International Business, was focused on analysis of New Ventures and Corporate Expansion into foreign markets. So I went back and looked at some of the analysis models and compared them to what I had written. Needless to say, much of my initial thoughts were predictable and did not look at the connectedness of the bigger picture. Let's highlight a few of them:

1. Demand for Goods, Worldwide - I said, "...they pay their workers in Mexican plants $13/hr, but pay their workers in Singapore/Taiwan/Malaysia $0.21/hr, so it's hard to make the math of the stimulus work unless people in the US wanted to start paying $200 for a pair of blue jeans." This is a classic mistake of looking at just one element of the end-to-end supply chain for bringing this textile good to market. Stepping back to look at the bigger picture, I may have found that shipping costs from Asia to the US have risen dramatically, or that new plants in the US are taking advantage of tax incentives to educate out-of-work furniture laborers, or some other element that could have made the overall business model work. But instead, I allowed myself to be fixated on a single, seemingly tanglible (and easily understandable) cost element.
2. Failure to Consider Shifts in Capital & Investment - Nowhere in my analysis did I look at the possibilities that Chinese investment would flow directly into the US to take advantage of low-cost workers, or better environmental conditions, or attempts to gain a foothold within the country like Honda, Toyota, Mercedes and BMW did with plants in the US.
   
3. Failure to Consider Shifts in US Opinions - I mentioned that in "Made in China" sometimes carries a stigma, especially when child safety issues arise. But I failed to look at attempts by Chinese companies to reduce any backlash towards a foreign company or brand.

Those are just a few misses. Needless to say, there is a lot that I still don't understand. But the good news is that the learning is in an environment that encourages mistakes. Now it's up to me to figure out when to ask question, what questions to ask, and when to realize when I don't know what I don't know.

This is going to be a fun semester.

Making Sense of the Tremendous Growth in China

Towards the end of last year, my team wrote a paper about the tremendous growth in the UAE, analyzing the region as a potential location for Foreign Direct Investment. With oil above $120/barrel and tremendous growth in both India and China, it was fairly easy to see that the UAE was well positioned to become a new powerful economic center between Europe and Asia.

Then the econalypse of 2008/2009 happened and the sands that all that growth was built upon quickly shifted, leaving many of those towering buildings in Dubai empty or partially completed. The center of the world for crane rentals suddenly faced the realization that comes with $40/barrel oil and the interconnectedness of our global economy.

Throughout our visit to China, we were constantly stunned by the pace and scope of growth throughout the country. Every city we visited was filled with cranes and construction crews, often working until well into the night (3am in Shanghai). New freeways, subway systems, waterway tunnels. 50, 100 and 150 story office buildings. High-rise apartments packed densely into every corner of the city. And this wasn't just a building here or a building there, this was the equivalent of 10-12 Winston-Salem's being added in all directions of almost every major city.

During our visit with the CITIC Group, their Chief Economist told us that the State Government had set the mandatory GDP growth rate at 8% in order to sustain the level of employment required to meet their goals and sustain a harmonious society. As I've mentioned before, the Chinese economy is still much smaller than the US, but 8% growth is an enormous number for a country of 1.3B people. Over the past decade, the Chinese economy has averaged between 10-11% growth per year. But given the resetting of the global economy, it's worth examining if this rate of growth is realistically sustainable over the next 5, 10 or 20 years.

So where will all of this growth come from? Let's take a look at a few potential areas of growth, as well as some factors that could limit the growth if not addressed and corrected.

Growth Areas

Demand for Goods, Worldwide - While consumer's bank accounts, 401(k)s and home values have all fallen over the last 12 months, it hard to believe that regions with traditionally strong consumer demand (US, Europe) will stop buying goods. If anything, they will continue to move towards low-cost goods, which can only favor Asian manufacturers and sourcers. When visiting one of the Garmet manufacturers during our trip in Hong Kong, someone asked if they expected many factories to be reopened in the US (or North America) given the stimulus from the US Gov't. The response was that they pay their workers in Mexican plants $13/hr, but pay their workers in Singapore/Taiwan/Malaysia $0.21/hr, so it's hard to make the math of the stimulus work unless people in the US wanted to start paying $200 for a pair of blue jeans. At another factory visit in Xi'an, the Operations Manager told us that more and more factories are moving to the western part of China because the costs in the eastern plants are growing too fast. He said that for every 500 miles they move west (with Xi'an being the western gateway today), their labor costs drop by 50%. And China still has 25% of their population (450M people) living in western providences and areas. Many of those people make less than $5/day, with over 100M making less than $1/day. Those types of numbers say that it will be very difficult for the US to get back any of the jobs that have gone overseas in the last 1-2 decades.


Demand for Goods, Domestically (in China) - The GDP of China has risen from $2/person to $2,300/person over the last 20 years, and is expected to rise to $5-6,000/person in the next 3-5 years. After the economic collapse in 2008, the Chinese government quickly realized that it was too dependent on exports, with only 30-35% of GDP going towards internal consumption. With all the growth and opportunities within China, there is quickly developing a growing middle-class that is seeking additional goods, services and comforts in their lives. Many of the changes in the middle class are trending towards Western ways of consumerism. Just as the middle class became the backbone of growth in the US since WWII, there is an excellent chance that this same growth will happen within China over the next 10-20 years. Ironically, one of the things that many people have identified as coming out of the Tiananmen Square incidents in 1989 is the liberalization of China, which is creating greater economic freedoms from small and medium sized businesses.


Innovation - China graduates 600,000 engineers from university programs per year, while the US only graduates 60,000. Its elementary school children are in classes at least 6 days a week and are typically bilingual at an early school-age. While it's true that the US has been the center of 21st Century Innovation by some standards, others believe that the US stumbled or wasted the past decade and is failing behind in driving innovation in key technology areas. But once again, the massive numbers will drive the need for changes and innovation. Cleaner environmental conditions, renewal energy, greater food production, next-generation mobile communications - all of these challenges will spur innovation internally, and it will be subsidized by the State Government who has declared those all to be challenges that could impede China's sustainable future. Does this mean the US will stop innovating? No. But this should be a wake-up call to the US that our ways of looking at superiority or value-creation may need an overhaul. More and more major companies are locating R&D facilities in China, and it's only a matter of time before the innovation created in those labs spurs local entreprenuers and scientists to go out on their own and create the next Google or Genentech or Toyota or Airbus.

Government Influence - It my seem ironic to think that government influence could drive greater economic growth, but it's very possible that the isolationism and single-party system in China could provide the stability between market cycles to help guide China into areas that will allow it to continue to growth at such a rapid pace. Whether this growth is via tax incentives to critical Chinese industries, or through fiscal policy and stimulus, it's very possible that future growth will drive their political policies more so than in the US where party politics and re-election strategies often have more influence that long-term country growth.

Potential Stumbling Blocks

US Consumer Spending - Just as the Chinese are not going to be able to radically shift their culture to become greater consumers of goods overnight, neither will Americans be able to drastically reduce their addiction to consumption. But there is a possibility that the latest downturn, just like a bad result from a doctor's exam, will provide shock treatment to many Americans and begin a cycle of reduced consumption. The days of the House-as-an-ATM are gone (at least for a while) and many people are out of work, so the cash to spend is just not there. Whether this will change long-term is still to be determined. The possibility of a newfound "Buy American" sentiment could also arise and put a dent in Chinese exports to the US.

Rising Environmental Costs - As we experienced in Beijing, Xi'an, Shanghai and Hong Kong, the skylines of these major cities are badly polluted. With the growing presence of cranes driving new buildings and factories, this challenge will only get worse in the near term. The massive use of coal to power the country leads to polluted water, polluted air, and contributes to the loss of "green" space around the country. Finding alternative energy sources is one challenge facing the government, but also taking on the cost of cleaning their environment to sustain food and life will become an increasing burden. These costs will take away from GDP production.

Product Safety Costs - The recent problems with lead paint on toys shipped to the US highlighted another lack of control that could have a long-term impact on their ability to export. When safety issues directly effect children, the sentiment grows loud to associate "Made in China" with potential harm for children around the world. Trust is a commodity that is not easily replicated or imported, so the Chinese will have to increase their adherence to commonly used guidelines for safety and inspection, adding new costs to their products. These additional costs represent capital that will not be available for GDP production.

Growing Population Costs - Similar to the US, China has an aging challenge with it's population. The greying of their population will increase costs for healthcare, home-care, pharmaceuticals and all other aspects of extended life. How these added costs will be absorbed is still to be determined, since China does not provide a public safety-net similar to the US with Medicare, Medicaid and other programs.

The Laws of Big Numbers - 8% growth (or anything near that level) doesn't happen in developed countries. At some point in the near future, China will begin to face the challenge that all large organizations face, trying to navigate a giant ship in an ever-increase competitive world. Changes won't happen as fast. Competition from outside China will learn from their success and improve on their processes. Countries or businesses considered about the growing might of China may look to hedge their futures with goods and services from elsewhere in Asia, Eastern Europe, Africa or South America.

By no means does this short list of possibilities and challenges tell the whole story of what may happen with Chinese growth over the next couple of decades. The growth China is experiencing today is not only massive on a global scale, but its impact on the rest of the world will resonate for generations to come. Will they be able to sustain it in a way that ultimately creates more value than destruction? We'll have to wait and see. But if they can coordinate their economy in a manner that is anything like we saw at the 2008 Opening Ceremonies, the odds of success are a distinct possibility. It will take Olympic-like precision to get past some of their growth challenges, but whatever happens, the world will be deeply impacted.

3rd Semester begins - 6 months to go!!

The thirty of us remaining in the WFU MBA 2009 program returned last night from our international trips and a couple weeks off. It was good to see everyone again and catch up on their trips. The mood seemed to be slightly less intense than semesters past, partially because the weather is so nice and partially because it's been six weeks since we were here in Winston-Salem and everyone is trying to get back into a groove.

This semester is about all things International. We have three classroom courses and the International Practicum, which included the two week trips to either China, Japan or South America. The classroom courses this semester are all only six weeks (instead of eight), which means they consolidate quite a bit more reading into each session.

International Financial Management is being taught by Dr. Bruce Resnick. The course will focus on FX Markets, differences between Domestic and International Finance, International Strategy and overall International Portfolio Management.

International Business Management is being taught by Dr. Mike Lord. Mike was the lead for our China trip. The course focuses on a broad range of topics (Cultural, Economic, Political, Geographic) that effect how companies engage in international expansion and operations.

Global Strategic Management is being taught by Dr. Ram Baliga. The course focuses on many aspects of strategy as it relates to products, operations, M&A, market entry and competition.

The international trips seem to have changed the overall perspective of the world for many of my classmates. They seem to have a better understanding of how much bigger the world in terms of opportunities and competition. They seem to have a better grasp on how Finance, Culture, Government Policy and Global Economics fit together. And they seem to have a new sense of what to explore and question as they try and make sense of how they are going to fit into the global economy.

We still don't know what we don't know, and but this semester should help to fill in the blanks on a few questions. The courses are all in English, but there is definitely a different set of languages being spoken in class are still a little bit foreign. Hopefully the learning curve moves faster than my attempts at Mandarin.

China (Overall) Notes

These were point-in-time notes as we went through various areas of China. Some of them I still believe, while my opinion on other areas was changed as the trip went on. I'm including all of them to help me remember how my mindset changed throughout the trip and after I returned.

Asia - 3B people, 20% of global GDP

Surface tradition; govt or society defined rules; no enforcement penalties; no rules for business in the "get it done" levels

Not about thc great people or ideas, the average / above average people and the masses at the bottom, hungry to get out.

US rules don't apply to business models or practices. One man's profit is another man's business model.

Growth model is not sustainable (questionable) and doesn't create real value, sustainable value (need to dig into these stats). Need to rethink this thought. The pace is face and destructive, but it may be moving value from other parts of the world.

Go back and study the evolutional of American economy (from 1900s) to have a viewpoint on how China & India may evolve.

Remember GaFe's viewpoint, it's about a long-term partnership, not adversarial. Let govt fight about keeping score.

Stop trying to defend why the US is better. Start thinking about better partnerships or ways to succeed within the new rules.

China ambitions are something better every 2 years (promotions), and salary/costs are rising 100% y-over-y. Think about how you'd structure your business within those models.

With China growing this fast, they don't have the legacy technologies...leapfrog to latest stuff.

Little Emperor syndrome, similar to US helicopter parents and Milenials

Go with the flow on new stuff.

SMB is difficult to create because their sense of size & scale is so different. Technology is a possibility, otherwise consider JV.

Just as other countries have strived to speak English to study the US, it's time to begin learning Mandarin to communicate and understand.

Xi'an Notes

I found these on my iPhone, which I was using as a notepad during the various bus rides and business tours on the trip. I've been reading back through these to get perspective on how my mindset changed throughout the trip and after I returned

Original capital of China
Northwest part of China
8.3M people
No subway system - original line in 2011
Natural gas cabs

Beginning of Silk Road - China to Europe
Terra Cotta Warriors

Well balanced workforce, industry, infrastructure. Gateway to the west. Parallel to US Western expansion?

JV opportunities because of workforce education? Concerns about govt intervenion (IPR issues) because of aerospace industry.

Energy center; Chemical center

Volvo JV: (Joost)
- IPR - copy yourself or done within 90 days
- Supplies from state owned partner
- Top down management (only)
- Prices fall every year - China doesnt follow world market prices (govt subsidies)
- "hourly capital" - lean manufacturing
- 1/3 temporary workers, compete for jobs with others
- Attempts to reduce required floor space by 10% each year.
- Every 1500km west, labor costs drop 50%

Environmental - big difference between regulation & enforcement

Beijing Notes

I found these on my iPhone, which I was using as a notepad during the various bus rides and business tours on the trip. I've been reading back through these to get perspective on how my mindset changed throughout the trip and after I returned

15M people; 85% non native to Beijing

City wall - stones for houses - eventually the stones from the City Wall were used to build 1000s of local houses
10,000,000 bicycles - lose one, steal one
4 walls surrounding the city (old)
3.5 M cars (no carpools)
Huge change in Chinese culture in last 20-30 year
Small house destroyed for large buildings
40,000 yuan per 10 sq ft (business center)
1976 earthquake - buildings with white columns - reinforcement
Before 1980 - no buildings above 10 stories
90 universities

80% of trees removed from 1950s to build farms
Renewal of trees with last 10-15year
Great wall of trees - Green Wall

No receipt, don't pay taxes - sometimes you can ask locals for the "no receipt" price to get better deals

Coal mine owners are the riches segment of the country, behind the government
"Managing the Dragon" , "Mr. China" - books that explain this concept

For the good of China...don't harm the environment...use resources from other countries - a comment from CITIC on the State policy of using local natural resources vs. buying them from other countries

No appt. for medical services. Go to hospital (stand in line). Pay service fee. Dr. gets commission from prescriptions, so they typically over-medicate. TCM - Chinese Traditional Medicine. Wholistic medicine. No testing of drugs. Contrast vs United Family Healthcare. Life expectancy is similar to US...walking, biking, green tea. Tamaflu based on TCM.

Disregard for IPR (Intellectual Property Rights) is incredible. No morales for ideas. Copycat culture. Nothing sustainable. 20 international films per year. - later in the trip I learned more about their IPR laws vs. IPR enforcement, as we all the attitudes towards not caring about "YOUR" IPR if a copy can employ 100s or 1000s of Chinese workers.

Greg's analogy of the winding road system to the overall system of controlling the population - these was never a direct path to get between places in Beijing. It felt similar to waiting in line at an amusement park, where they have the long, wrapping lines to better handle crowd control and queuing. Driving anywhere in Beijing felt like this.

FAILURE (or "I Failed")

In talking to many different people in China, from various backgrounds, one word that I heard quite often was "FAILURE". The context was typically something like this, "Before doing , I worked as a , but I was a failure." The Chinese seem to have a binary view of activities. You're either extremely successful (most popular, most famous) or you failed.

I wasn't exactly sure how to interpret this.

• How long do they typically give themselves in a certain activity before it is considered a failure?
• Are they better than Americans at getting out of a bad situation? I know plenty of people in the US that dislike their job but stick with it because it pays the mortgage.
• Is their concept of failure considered a black mark on their career (or resume), or like a badge of honor, similar to how failed entrepreneurs (or NFL football coaches) are revered in Silicon Valley?
• Does their lack of creative thinking (vs. analytic thinking) lead them to consider activities failures earlier than they might if they stepped back and looked at alternative strategies or options more often?

I need to speak to some of my Chinese-American friends about this aspect of the culture in more detail. I need to better understand if this is a widespread mindset, or just a coincidence that we experienced during our two weeks in China.

The Golden Rules of China

Professor Mike Lord shared various tidbits from his previous travels with us throughout the trip. In an email today, he shared with us a list that he and several other exPats (and MNCs) have been developing since their visits in the mid-1990s.

Golden Rules of China

1. Everything is possible.

2. Nothing is easy.

3. Western business logic does not apply.

4. It is a fun project if there is no deadline.

5. You must persist – things will come your way – eventually.

6. Patience is the essence of success.

7. “You don’t know China” means they disagree.

8. New regulation means they found a new way to avoid doing something.

9. “Internal regulation” means they are mad at you.

10. “Basically, no problem” means BIG problem.

11. When you are optimistic, think about Rule 2.

12. When you are discouraged, think about Rule 1.

Feedback on Netbooks & Mobile Computing

Before our trip to China, I wrote about the 9" Asus Eee PC netbook that I would be taking to assist with blogging. Having discussed the product in ITMgmt class in the Spring'09 semester, I got a good chance to experience the difference between a netbook and a full-blown laptop.

Here's my thoughts...

Size & Weight - Considering that I carried this around in my backpack for 14 days, the weight and form-factor were perfect. The keyboard took me a few days to master, and it helped that I'm a two fingered typist. My roommate Gregg had a difficult time on the keyboard using traditional typing techniques. The screen size is obviously smaller, but this tradeoff was more than acceptable for the weight.

Usability & Mobility - I opted for the Linux version, instead of the Windows version, to get the true netbook experience. I wanted to focus on using applications that reside in the cloud, as opposed to local apps (MS-Office, etc.). Most of the applications I needed (Firefox, Skype, etc.) come pre-loaded on the machine, and they worked perfectly. Internet from the hotel rooms was decent, not exceptional, which sort of surprised me. What I didn't find much of was free WiFi access in coffee-shops, and netbook did not have any built-in 3G access, so the mobility aspects weren't something I could experience. WiFi worked fine at home in the states, so I'll give that a pass.

Cons - For the most part, it's a very useable machine and a great mobile computing device. But the one thing I truly disliked was the interaction with the mouse and trackpad. It was very inconsistent (mouse and finger-swipe movements) and the click-button was too stiff and very loud. The noise isn't that big a problem, except in quiet rooms. I think I woke up my roommate several times when I'd get up to write in the morning.

While the netbook seemed to be a decent platform for the trip, I eventually had to compare to using my iPhone. It was somewhat of a difficult comparison in China because the international data rate from AT&T were obscene (20Mb for $20). The netbook had the storage I needed to download picture and videos, and supported Flash for applications that required it. But if I could had gotten US rates for 3G data access, I think I could have been just as happy using my iPhone for all my mobile computing except for data storage.

Overall, mobile computing has come a long way in just a few years, with netbooks beginning to fill a niche in size, weight and functionality. The iPhone fills another niche, and I think there may still be room for an in-between form factor (or a storage add-on to the iPhone). I still had to carry my FlipVideo and others used their digital cameras, so the all-in-one mobile device still doesn't exist. And of course, ubiquitous & cost-effective mobile bandwidth still has a little way to go.

The Chinese seem to do everything from their mobile phone, so I wouldn't be against that form factor. A world without wires is critical, and the instant reponse times possible with a phone-like device make business in China move at the pace it does. Innovation in this area still has a alot of potential to drive huge amount of revenues and business opportunities.

Why China isn't the next Silicon Valley!

This is an interesting article by Sarah Lacy. I'm not sure how many times she has been to China, nor do I claim to be an expert with my visit count at a whopping "1". I find her viewpoint interesting, but not surprising. How could anyone but America, and especially our innovation mecca of Silicon Valley not be the home of the next great invention? I'm ashamed to admit that before our trip a few weeks ago, I would have thought the same thing. China is great at copying stuff. They are great at completing tasks that the brilliant and creative Americans assign to their low-cost workers. They all skipped the creative classes in school to take an extra math class.

Boy was I wrong about that. Its hard to explain without visiting, but there is definitely a culture of innovation in China. You can't build the cities that dominate their landscape without some creativity and strategy. You can't create business models that allow your companies to grow, when faced with a copied product within 90 days, if you don't have creativity and innovation. At this stage the innovation may not all be about new technology, but it is definitely about operational excellence, business model creativity, and a good bit of raw determination. Call it survival innovation. It's what motivates you to move from $1/day to $40/month to a high-rise in Xi'an, to a 100M RMB villa outside Beijing.

I'm looking forward to seeing if China becomes another Silicon Valley. But from the little bit I learned about Chinese culture, I doubt they want to become another anything. They will want to create a uniquely Chinese mecca of technology and innovation, or maybe a half-dozen. I'm hoping to find some ways to be part of that growth. I that for the next 5-10 years (or more), it will be a partnership play for those willing to create win-win situations in both countries. I don't believe it will be a zero-sum game with only one winner. As we've seen from the current econalypse, neither current can succeed if there is only one winner.

btw - kudos to Ms. Lacy for working on her Mandarin. I've been trying for a few months and not having as much success as I'd like. If she needs a study partner, please let me know. Or if she learns any tricks to learning it faster, I'd welcome those as well.

Communism in China - A single party system

[Cross-posted from our WFU MBA China '09 blog]

While not everyone on the trip remembers the Cold War (Russia), or the falling of the Berlin Wall (Germany), or the beginning of the Cultural Revolution (China), you could definitely sense that everyone on the trip had a curiosity, or concern, about how the Communist Party might effect our trip. Having worked for Cisco for many years, I had heard all the accusations about how our products were used to censor the Internet for Chinese citizens.

So the question remained, how much would the Communist government effect our trip? How much would we be allowed to see? How much does it effect the ability to do business in China and with Chinese business partners.

By no means should this post be taken as a definite answer or viewpoint. We were only there for two weeks, and had limited visibility into any aspect of companies or the Chinese people. But we saw bits and pieces, and that is what I'll share today.

In Beijing, we met with the former Chief Economist of The CITIC Group. CITIC is a mulit-national conglomerate that serves as an investment arm of the Chinese government. With that connection, the views from CITIC and the Chnese Government are obviously fairly well aligned. The views from CITIC recognized some of the huge challenges facing China:

1. An increasingly growing wealth gap between the richest and poorest people.
2. Environmental problems (air & water) as a result of all the growth over the past 10-15 years.
3. The challenge of finding enough natural resources to support their growth, as well as the search for alternative mechanisms (solar, wind) to substitute for those natural resources.
   
4. The dependencies on exports to drive their economy (especially the US), and the need to drive consumerism within their country.
   

These challenges all have a long-term time horizon, and all of them have a direct impact on the overall quality of life for almost all Chinese citizens. They impact the government's primary goal of a harmonious society, and they impact the long-term viability of the country.

At other State Owned Entities, such as Bright Dairy or Xi'an Aircraft Corporation, we saw how the government had identified certain industries or economic areas as critical to the long-term success of the country and was providing them with favorable benefits (ie. limited or no corporate taxes) to help drive growth and employment of Chinese people. While these benefits may or may not have been extended to other competitors in these industries, they did highlight the levels that the govenment will go to create a type of "floor" under parts of the economy to avoid speculation or wild swings that could create broader social problems.

Extending this concept of a "floor" to the financial portion of the Chinese economy, we visited the Shanghai Stock Exchange. The most prominent exchange in mainland China, it employs very rules that attempt to ensure more order in their markets:

1. No short selling of stocks.
   
2. All stocks must be held for at least 1 full day prior to being resold (N+1 rule). This essentially eliminates day-trading.
3. The variation in any one day can not exceed a +/- 10% band from the original price.

While some of these rules could be viewed as restrictive to efficient markets, especially from a US perspective, they could also be viewed as trying to force some amount of patience or "take a step back" into their markets to prevent extremes reactions to rumors, fear or greed. Whether or not this is a good thing for the SS Exchange or the overall Chinese marketplace will have to be determined long-term, but it does highlight another aspect of trying to maintain a level of harmonious society in various aspects of Chinese business.

As the trip progressed, I asked several of these questions to Professor Mike Lord, who has been leading this trip for 10 years and has extensive business accumine in the region. His response was that it probably makes more practical sense to view China as a single party capitalist country, instead of a Communist state that endorses capitalism. You still have to be aware of the guidelines needed to do business in China surrounding ownership, relationships and competition, but that their inclusion into the WTO had sparked a tremendous understanding that global economic powers can not control markets and that competition and innovation will ultimately determine their success or failure. This made a lot of sense. From an outsiders perspective, it was very hard to see China as being anything but a hyper-competitive capitalistic market. Just the pace of re-engineering of products and creation of companies to sell those would suggest that the government can only extend so much influence.

Don't get me wrong, I'm not trying to suggest that the government is not a prevalent part of daily life in China. I witnessed this first hand. YouTube is blocked. I heard people listening in on my phone calls. I saw soldiers outside of many buildings. I heard citizens tell us stories about their knowledge of Fallon Gong, and their fears of discussing the events of June 1989 in Tienanmen Square. But none of these things seemed to impede the flow of business (except maybe portions of Google's business).

So the conclusions I drew were primary about my mindset about this blend of Communism and Capitalism. For now, it seems to exist in a fairly harmonious state. Could this change in the future? Possibly. Those major challenges I listed above could get more difficult, or the citizens might become less tolerant. But there appear to be (at least surface level) signs that they are being addressed.

My advice to Americans looking at interacting with China is to view their economy as being similar to the US, except with the competition level turned up a few notches. Learn what you can about ownership and relationships with Chinese companies and the government, but don't let the fear of a single party system paralyze your ability to actively engage in the world's largest marketplace. Like anything else, keep expanding your knowledge of the region and it's culture.

Healthcare in China

[Cross-posted from our WFU MBA China '09 blog]

After meeting with United Family Healthcare, we had the opportunity to speak with several Beijing residents about healthcare in China. Several interesting aspects emerged, which highlighted major differences from the United States.

1. You don't make appointments with a family doctor or at a local clinic. If you have an issue, you take the day off work and go to the hospital. There you stand in line and wait for a doctor to examine and treat you. The doctors don't make much from a basic visit (fixed fee), but instead make the majority of the money on prescriptions. So most Chinese people are often over-prescribed with each visit, to the point that they feel the doctor has failed them if they don't walk out with a list of prescriptions.
2. Traditional Chinese Medicine (TCM) is primarily focused on reactive medicine rather that the preventative medicine of the west.
3. The majority of people in China do not have health insurance. This has resulted in people saving massive amounts of money (50-80% savings rates) out of fear of major medical bills. This is recognized as a major cultural issue by the Chinese government, so effects are underway to consider ways to create a social "safety net" system.
4. The level of doctor skills in China is excellent, both because many of them have been educated in the US, but also because science is so heavily emphasized in the schools from an early age.
5. The average lifespan is 71 (Male) and 74 (Female). While the air and water quality have serious challenges, the fact that their diet is low in fat and they frequently exercise (walking, bike riding, kung-fu, tai-chi, etc.) contributes to this longevity.

Just as in the US, China has a growing ederly population and will face similar long-term healthcare issues. Without social security of Medicare / Medicaid type programs, many elderly will potentially move in with their children. While this was traditionally accepted, as more of China becomes westernized and the young families are more focused on careers (with only a single child), this is beginning to cause some culture changes and difficulties across the generations.

Long term the population will face the risks associated with growing pollution problems and water shortages. Combine this with the growing western influence to their diets and China has some potentially large challenges to address over the next 10-20 years of their evolution.

Killing the Trolls of your Past

Another good find from Seth Godin. I noticed this at the end of the first semester as classmates told us about their background in our LOB class. So much of their decision-making today was guided by one of those "trolls" from their past. As I mentioned in my China Hangover post yesterday, I've been overwhelmed this week by how much of this I hear around the office. "We can't do that because....", it's almost always based on some failed attempt sometime in the past. Nobody seems to remember that today isn't yesterday and the world is not the same.

One of the most powerful sessions we had in China was a meeting with WFU MBA alum GeFei Li, who has bridged his knowledge of both Chinese and American business and culture into an incredibly successful set of companies. He talked about how many business people approach China with preconceptions or as the enemy, most of whom fail. Approaching business in China requires a new open-mindedness and a willingness to look at this as a win-win partnership. Letting the trolls dictate your goals or agenda is a recipe for disaster. It's not easy to let the pains from old wounds impact your judgment, but it's critical to look forward and find a way to view the world from today's viewpoint, with a vision towards the future. The trolls are in the past, and the past can't be changed.

The China Hangover

About an hour into long international flights, the flight attendants begin to move down the aisles serving drinks. If you're interested in getting some sleep, it's often helpful to have an adult beverage, and soon enough you're nodding off. But occasionally the cart comes by too often, or the turbulence prevents you from sleeping and upon arrival your head feels like the plane just landed on it. Flight hangovers are no fun.

For some of us, we're in the middle of a slightly longer hangover. In this case, we'll call it a "China Hangover" and it has less to do with a headache and more to do with a comparison. The comparison between the freedom and pace that we experienced over the past two weeks in China, and the pace that our world moves here in the United States. Having never experienced this before after international travel, I'm not sure how long it will last. My sleep is constantly interrupted by thoughts of China. I sit at work frustrated by the unnecessary barriers we put up to get things done. My thoughts during my morning and evening commute are filled with concepts for new businesses that either involved China, or adopt their strategies and attitudes towards business.

China is an amazing place. The past two weeks were incredibly eye-opening. This is a hangover that I'm not sure that I want to end anytime soon, because it's forcing me to look at the world in a completely different way. What I do with this new viewpoint will be the most interesting activity I undertake in 2009 (and possibly 2010). Getting back there is now high on my priority list, and probably needs to become an annual event (in some manner) to build my knowledge and contacts.